Australia Energy and Transport Sectors Transformation

by Jason Shaw

The Garnaut Climate Change Review

(Summary of Chapters 20 and 21 of the Garnaut Climate Change Review)

Table of Contents

  • Key Points
  • Summary of Chapter 20: Transformation in the energy sector
    • General findings
    • Recent efforts to rationalize energy cost
    • Facilitating transformation
    • Short-term and long-term measures required
    • Emissions trading will make certain unviable processes becoming viable.
    • Results of the modeling studies
  • Summary of Chapter 21: Transformation in the transport sector
    • General findings
    • Sensitivities of the transport sector
    • The future of transport sector
    • Results of the modeling studies
  • Critical review of the findings
  • References

Key Points

Chapters 20 and 21 of the Garnaut climate change review focuses on transforming energy and transforming transport in the Australian scenario for minimizing greenhouse gas emissions, for sustenance of future generations and towards meeting the obligations under the Kyoto Protocol.

Australia had enjoyed low and stable energy costs in the past. However rising capital costs and rising price increases of black coal and natural gas are already posing challenges for the future. Carbon price increases consequent to the emission trading scheme would further push up the energy costs resulting in much higher energy costs.

With energy choices through fossil fuels and low-emission technologies, the hope is that through research, the country will be able to develop and commercialise low-emission technologies and effectively move to a near zero-emission energy market by the middle of the century. The future of coal-based electricity production in Australia and exports of coal to Asian countries will depend largely on the commercial feasibility of carbon capture and storage via new mitigation processes. Australia should play a major role in this technology’s growth.

Australia Energy and Transport Sectors Transformation

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Emissions from the electricity generation sector being the major contributor for carbon dioxide emissions, containment in this sector will advantageously support other stationary energy and transport systems.

Higher oil prices and imposed emissions costs in the future, together with growth in population will drive the country for changes in vehicle technologies and fuels. Zero-emission road vehicles will become economically viable and there will be significant decarbonization in this sector.

Governments have a major role to play, considering the impacts of population growth, higher oil prices and emissions prices, in planning and implementing appropriate systems and mode shifts of rail and road transportation that will minimize the economic costs. It is expected that mode shift will account for a quarter of emission reductions in this sector while delivering multiple benefits to the society.


Summary of Chapter 20: Transformation in the Energy Sector

General Findings

Australia’s efforts to combat climate change through transformation in the energy sector are important for the country and for the world. The country is expected to achieve close to “zero-carbon” over the next 40 years. Large price increases on natural gas and black coal in the international markets have adversely impacted domestic energy costs and the impact will be felt more severely as the country traditionally relied on low cost energy in the past. Imposition of carbon pricing within the emission trading scheme is bound to push up the prices further that will become much higher beyond 2020.

The electricity sector accounts for about 35 percent of the emissions, and therefore, it is important to focus on this sector to achieve targeted reduction of greenhouse gases. Apart from covering the generation sector, related sectors such as coal and aluminum are also discussed in this chapter. The role and structure of the energy sector considered here is based on the Garnaut–Treasury economic modeling.

Recent Efforts to Rationalize Energy Cost

In Australia, power production is primarily based on black and brown coal for “base-load supply, transmission and interconnection for flexibility and additional security.” Gas-fired plants provide peak and intermediate demand support to the grid. Marked rises in gas-based supplies have been motivated by technological reasons as well as conscious governmental behaviour.

Newly introduced policy reforms encouraging privatization and competition resulted in the restructuring of the electricity sector and stabilization of prices. Problems still remain in this sector, such as removal or retail price regulation, mechanisms for exploration, production and transportation, etc that requires to be tackled. The Australian Energy Regulator is seized of these problems.

The federal government’s Mandatory Renewable energy Trust (MRET), The NSW Greenhouse Gas Abatement Scheme and The Queensland Gas Scheme have been entrusted with the task of promoting lower-emission technologies to respond to the climate change challenges. Their efforts together with increased public awareness leads a “voluntary market” on Green technologies such as harnessing energy from the sun, wind, water and waste, whereby the renewable energy is purchased by “their energy company on their behalf.”

Facilitating Transformation

It is recognized that, left to economic forces, the choice of fuel will be dictated by cost –benefit aspects than environmental considerations. One of the options to encourage green technologies is to introduce disincentives such as levies on greenhouses gas emissions to offset the cost advantage of emission based options.

Australia’s power sector largely depends on coal, and if mitigation measures are not taken, the greenhouse gas emissions are expected to double by 2050. The climate change impacts will be manifested by way of storm, wind, bushfire damage and increased levels materials degradation, besides other consequences such as water shortage etc.

Implementation of the emission trading scheme will entail making judicious choice of available input resources and processes. This will include making use of coal, gas, uranium, geothermal and solar energy and other renewable resources. The potentials for geo-sequestration and bio-sequestration of carbon dioxide need to be exploited. The steps can go through short-term and long-term measures.

There is only little scope for expanding the storage based hydro power in the country; however in the present context the power produced from these installations will have better value due to its flexibility to support peak demand. This can also give better balancing support to the intermittent supply technologies such as wind and solar. However there is scope to rationalize this sector for more effective operation, particularly those in the snowy mountains and Tasmania.

Short-Term and Long-Term Measures Required

The transformation should start from 2008. The first phase will last 5 to 10 years, the second will be 10 to 15 years and the third will be beyond 15 years.

The characteristics of the three phases will be:

First Phase:             Adoption of known technologies that result in lower-emission than the present.

Second Phase:        Introduction of new technologies as they emerge, and facilitated by the restructuring of the sector.

Third Phase:          Change over to long-term sustainable, low and zero-emission technologies

Short-term measures will introduce changes in marginal cost structures and asset values. The long-term measures will necessitate research, development and commercialization of more effective emission mitigation processes.

First phase of the emissions trading scheme is expected to start in 2010 with a charge of about $20 per ton (2005 prices) with annual increase of 4 per cent in real terms. This will correspond to indications of Garnaut–Treasury modeling, representing greenhouse gas concentrations at 550 ppm CO2-e. More stringent requirements will mean higher prices after 2013. Higher prices after 2013 will result in tighter global trajectories than that revealed by the 550 scenario. Even with the initial fixed price of the Kyoto period, markets would have developed a “spot and forward price curve for emissions permits” beyond 2012, even considering the initial “fixed price Kyoto period.”

The second phase will lead to the successful deployment of carbon capture and storage power stations fired from coal. New fossil fuel-based generation plants integrating coal drying and coal gasification technologies will be encouraged by technological advances at this stage. New technologies, including carbon dioxide capture, are also expected to be retrofitted at existing plants. In this process, Victoria’s brown coal that is unfit for export will be utilized domestically in the new technological scenario.

The third phase of transformation moves towards zero carbon emissions. This will be largely based on achievements of the second phase. Near-zero emissions coal technology is expected to place Australia in a dominant position due to its abundant coal resources. Successful development of bio-sequestration technologies is also a possibility during this phase.

Emissions Trading Will Make Certain Unviable Processes Becoming Viable

The permit prices are also expected to make such processes, such as the large-scale solar energy programme called Solar Cities, geothermal, solar thermal and solar photovoltaic technologies, less economically viable today. Similarly, energy storage technologies that allow good use of the hydroelectric capacity stored in Snowy Mountains and Tasmania can be used more effectively as sources of “base load” to offset the availability of intermittent power such as solar and wind. The validation of technologies such as biochar and analgal conversion of carbon dioxide as a method of recycling can also be seen at this point.

Results of the Modeling Studies

Three scenarios were used to calculate the transformed electricity market, based on Garnaut-Treasury economic modelling. These are respectively “no mitigation,” (base case), 550 and 450 ppm CO2-e global stabilization scenarios.

In the 550 standard technology scenario, the transformation activities will initially cause a reduction in electricity demand. The Aluminum industry, residential and commercial users will largely account for this reduction. In the longer term, residential demand is expected to fall by 11 per cent of the reference case by 2020.

In the 450 standard technology scenario, carbon capture and storage will diminish in favor of non-hydro renewable energy and the residential demand will rise to 13 per cent (instead of 11%) by 2020 and towards 50 per cent by mid-century.

It is very clear that, irrespective of the technology mix, progressive decarbonization to an extent determined by the cost of near-zero and zero emissions coal technologies will take place.

Summary of Chapter 21: Transformation in the Transport Sector

General Findings

It is expected that under strong mitigation scenarios, emissions arising from land transport will fall significantly by the middle of the century. The process will be driven by technological progress in achieving greater efficiency, emergence and use of bio-fuels, emergence of low cost electric cars and shift between modes of transport towards lower emission modes, etc.  It is also expected that reduction in travel frequencies and distances will bring about changes in urban forms and other economic changes incidental to the situations. However similar progress may not be achieved in the civil aviation sector, where only improvements by way of diversion of transporting needs to other modes and improvements in conventional energy use.

Sensitivities of the Transport Sector

The transport sector may be segmented into passenger and freight. It can be subdivided within each segment respectively into local movements involving short distances, inter-regional movements involving longer distance and international movements that are related to tourism and international travel.

About 97% of the energy used in transportation is derived from petroleum fuels. Fuel intensive modes of transport including trucks and cars accounted for 85% of the total emissions in the transport sector in Australia. Emissions from rail and shipping are minimal, despite higher proportion of loads moved.

Oil prices in the period 1990s to 2008 have been erratic varying from $ 30 a barrel in 1990 to $ a peak of 150 in 2008 for a short period. The modeling covered in this review assumes that oil prices will remain above $ 75, (US $ 60) a barrel. Higher prices will work in favor of alternative fuels such as synthetic diesels, bio-fuels and electricity and this also will exert pressure on individuals to minimize travels. While the impact of emissions trading had only marginally increased the price of petrol in the early years of price increase, it would become more significant in the future. Application of the principle of emission charges based on carbon dioxide alone in aviation sector may not fully represent its impact on climate, as the Radiative has more complex effects with its contents of nitrogen dioxide. The effect may be 2 to 4 times the impact of carbon dioxide emission alone.

The Future of Transport Sector

There has been an effort to investigate viability of several alternative inputs of energy such as liquid fuels from shale, tar sands, natural gas, coal, bio-fuels, fuel-cell hydrogen and electricity. It is likely that low-emission vehicle technology will be established and commercialized in the near future and possibly within the next 10 years.

A increasing population would place pressure on transportation infrastructure, requiring massive public transport expansion, while at the same time saving travel costs for individuals due to economies of scale, denser urban settlements and increased use of public transport. According to the Australian Bureau of Transport and Regional Economies, the demand for local land transport in the capital cities which reach a point of saturation, reducing the use of cars, but the demand for freight transport will continue to rise economically.

Changes in the mode of transport, such as the transition to more fuel-efficient and lower-emission modes such as rail, shipping, public transport and even the switch to non-emission modes such as cycling and walking, are an open area for emission minimization. The report states that there is room for major changes in the mode shifting choice compared to the Australian scenario of 20% of commuters using public transport, cycling and walking, compared to the European scenario of 50% of commuters using comparable modes.

Surveys suggest that improved use of public transport is contingent on availability of appropriate infrastructure, and it is in the hands of the government to identify, plan and provide such infrastructure that will attract residents to higher density environments. Choices and selection of such projects should take into account, the social and other benefits to the population as a whole together with the goal of mitigating emissions.  

The fact that price rises for petroleum products decrease their consumption is a proven fact. Published information from the Bureau of Infrastructure, Transport and Regional Economics shows that the effect of a price rise of 10 percent is manifested by a decrease in consumption of 1.5 percent within one year and about 4 percent in the longer term. Reduction occurs through the use of more fuel-efficient cars, the improvement of facilities for public transport, and improvements in urban structure.

Higher oil prices and higher prices for emissions have different effects on consumption. Higher oil prices are improving the competitiveness of all alternative fuels, whereas higher carbon prices are selectively encouraging lower fuel emissions. The price of emissions also raises the incentive to minimise the use of all types of fuels, not just petroleum-based fuels. The cumulative effect is that there will be a push towards greater fuel efficiency, including by the take-up of hybrid petrol-electric vehicles, smaller cars and fuel substitution.” Fuel replacement will require replacement of petrol by other lower-emission fuels such as gasoline, liquefied petroleum gas, and ethanol.

Results of the Modeling Studies

The review considers the results of economic models studied jointly with the Australian Treasury, considering the interaction of the transformation options and the one based on partial equilibrium model adopted by the Commonwealth Scientific and Industrial Research Organization (CSIRO) and the Bureau of Infrastructure. Results from these models were fed into the economy wide mitigation modeling of climate change impacts adopted jointly by Review and Australian Treasury. The study examines the outputs obtained from the models under three technology scenarios respectively ‘standard,’ ‘enhanced” and ‘backdrop.’ Another scenario that examines the impact of higher global fossil fuel prices was also considered. These studies however did not consider the effect of changes in urban form that could have major effects on future transport options.

The following findings emerge from the study of the economy wide mitigation modeling:

  • If there is no mitigation, the demand for all types of transport steadily rises and emissions in 2100 will be about four times the present.
  • Introduction of the carbon price in 2013, emissions due to increased road transport activity will be largely offset by improvements in vehicle technology.
  • In the 550 standard technology scenario, emissions will increase by 40% in 2050, but will be25% lower than what would be, in the no-mitigation scenario.
  • Transport emissions in 2100 will be about 70 percent lower than the levels in 2006. This is because, after 2050 transport emissions decline rapidly consequent to adoption of electric road vehicles.

The findings from Garnaut–Treasury “bottom up’ modeling, reveals that the 550 standard technology scenarios drive changes in road vehicle technology. In both the no-mitigation and 550 normal technology cases, the amount of fuel and engine models rises in the short term. In the 550 scenario, non-conventional oil supplies such as coal-to-liquids are not competitive, but ethanol and natural gas are rising their share, and petrol engines would be substituted by more powerful diesel engines. By 2020 and 2030, the share of several fuels will decrease with a change back to petrol as hybrid petrol-electric and plug-in cars, with shares of 50 percent and 13 percent each by 2050 and 2030 respectively. Thereafter electric vehicles will become predominant with a consequent increase in electricity demand.

In the same model with enhanced technology scenario, the transformation to electric vehicles will be achieved 20 years ahead but lower emission prices will lead to a slower ‘take-up’ with the result that the net time gain will be limited to 10 years ahead instead of 20 years ahead of the standard technology scenario.  

The independently modeled scenario, technology development enables unlimited reductions at an emission price of $ 250 per ton of CO2 –e (the backstop technology’). The effect is that emissions continue to fall, but the carbon prices do not raise and halts further transition.

The modelling of the Garnaut-Treasury concludes that the transition to a lower-emission transport system would be reasonably small in cost.

Critical Review of the Findings

Predicting what will happen in the next 5 or 10 years would be more of commonsense than guessing, whereas predicting what will happen in the next 50 or 100 years, perhaps is beyond the comprehension of planners. Climate change is complex subject where there could be a tendency to speak out from imagination. Certain IPCC predictions in the past have proved this point.

Australia is only a part of a larger system involving many nations. Therefore the mitigation process will be influenced largely by what other nations are doing. Nevertheless having a plan is better than not having a plan. Mitigation of emissions is essential for sustaining future generations. Therefore any research in this direction is valuable to shape the future as we conceive it today. It is possible to continuously update the findings the present findings can be considered a good starting point.

The models considered in the study eminently serve the purpose, and the conclusions can be accepted for preparedness to take timely actions.  

  • Garnaut Ross. The Commonwealth of Australia.Department of Climate Change. The Garnaut Climate Change Review. Canberra: National Circuit. 2008.Print


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